The rhymes of history

“More than the success of the Brussels negotiations is imperilled by the divisions of the western world … The western alliance lies spread-eagled after losing both common purpose and mutual confidence.” It could have been written yesterday. In fact it was written almost 54 years ago and forms the opening lines of the Glasgow Herald editorial from 15 January 1963. The context of the article was French President de Gaulle’s decision to reject British attempts at membership of what was then called the EEC, whilst also rejecting US overtures to provide the weaponry to help defend Europe which he regarded as usurping the French place on the world stage.

Fast forward to 2016 and we are again debating the nature of Britain’s relationships with its European partners, whilst the extent to which the US is prepared to underwrite Europe’s military defence has been one of the issues in Donald Trump’s US presidential campaign. In many ways, de Gaulle’s fears look remarkably prescient. When asked what was France’s position regarding Britain’s entry into the Common Market, he replied “The Treaty of Rome was concluded between six continental States, States which are, economically speaking … of the same nature … The entry of Great Britain … will completely change the whole of the actions, the agreements, the compensation, the rules which have already been established between the Six … Then it will be another Common Market … which would be taken to 11 and then 13 and then perhaps 18 [and] would no longer resemble, without any doubt, the one which the Six built.” 

To put it simply, de Gaulle foresaw that the entry of the UK would be the thin end of an expansionary wedge which would change the nature of the European project. Historians argue about the old man’s motives but there is little doubt that the UK has never sat comfortably within the EU. Moreover, the eastward expansion in 2004, which almost doubled the number of member states, did indeed change the nature of the project as de Gaulle predicted.

I find this whole debate fascinating because it highlights that many of the problems which we face in the US and Europe today could usefully use a little historical perspective. We can debate whether the trend in the US towards retreat from some of the world’s more intractable problems has echoes of the isolationism of the 1930s with all its attendant consequences, though I have no intention of doing so here. For those interested in a more detailed take on US foreign policy, I would recommend organisations such as The Foreign Policy Association (here).  Suffice to say that we should have a better idea next week of the direction in which US foreign policy is likely to evolve.

But when it comes to European issues, it is safe to say that never in my lifetime has the continent appeared so febrile and policy so lacking in direction. In recent years, the EU has suffered a crisis of confidence brought about initially by the Greek debt crisis and latterly by a huge refugee influx. In part, this reflects the over-confidence of the 1990s which prompted the EU to expand too far, too fast. It also reflects policy mistakes, particularly with regard to the economy. Indeed, it increasingly appears that the construction of monetary union failed to adhere to de Gaulle’s message that forcing disparate countries together in a single economic system was a recipe for disaster. This came about because policy makers across Europe used economic structures for political purposes. But as every economic historian knows, fixed currency arrangements tend to end in tears (I will explore this in a future post).

The solution to many of the EU’s economic woes is more federalism, but the tide of public opinion is swinging back in the other direction. It increasingly looks as though the EU built the foundations of the structure which it wanted to become but delayed for too long in building the walls, let alone the roof. The tide of history is now moving too quickly for the EU to resurrect the ideas of the 1990s but a return to the Common Market ideal of 1957 also appears unpalatable to many European politicians today. Yet the latter option may be the only solution which is ultimately workable for a Europe riven with disparate economic and political goals.

As for the UK, it is quite clearly a nation ill at ease with itself. Half its voters want to secede from the EU and half do not. Yet such is the febrile mood today that when the judiciary rules parliament must have a say in how the country leaves the EU, it is accused by the Fourth Estate (the unelected and self-styled voice of the people) of being an enemy of democracy. Lest we forget, the early years of the Thatcher government were also a period of extreme social unrest but I cannot recall an atmosphere as poisoned as the one we have today. Economic rationality (if such a thing can be said to exist) is being totally ignored as we debate our economic future.

Mark Twain is reputed to have said that history never repeats but it does rhyme. But the poem being written today is not of the epic variety. It is closer to the worst kind of doggerel.

A Spaniard in the works

It is ironic that the legal challenge to the government's handling of the Article 50 process was brought about by one domestic resident, one Spanish hairdresser* and a British expat, only one of whom would have had the unambiguous right to vote in the referendum. Unsurprisingly, the High Court ruling that the UK parliament be given a say before Article 50 is triggered has evoked strong reactions across the political spectrum. The Leavers see it as an attack on the democratic process, despite the fact that the referendum result was advisory and not legally binding, and that whilst the electorate may have voted for Brexit they did not vote on the terms on which the divorce should take place.

Contrary to the hopes of some fervent Remainers, it is unlikely that parliament will try to prevent Brexit from occurring. For one thing, this would be perceived as highly undemocratic and would lay government open to the change of ignoring the will of the electorate. This in turn would lay it open to additional legal challenges, which would slow the process of working towards EU exit and threaten the constructive working relationship between the executive, legislative and judicial arms of government. And before we all get too carried away, let us not forget that today's ruling has yet to be ratified by the Supreme Court to which the government has appealed. For all these reasons, the predictable howls of outrage from the usual suspects in the media will likely prove misplaced.

Rather than seeing the process as an attack on democracy, I prefer to see it as introducing a firebreak which will give the government more time to think about the nature of the divorce which it wants from the EU. A commitment to trigger Article 50 by end-March does not allow the government sufficient time to conduct the requisite preparatory work on issues such as the future of financial services. Moreover, it potentially gives the UK enough time to postpone the  trigger point until after the French and German elections, which will allow them to become more engaged in the process rather than focusing their energy on domestic political issues.

The spirit of the challenge to the government was based on the notion that if Brexit has to take place, it should at least be on terms which are favourable to the British people. Nothing I have heard so far gives me much confidence that ministers such as David Davis and Liam Fox are capable of making such a decision. Indeed, their views appear to be based on ideological, rather than economic, considerations. It has crossed my mind in recent weeks that perhaps this is the outcome that Theresa May wanted all along. It has long been suggested in legal circles that the government's case was based on flimsy evidence and that its team was not particularly high powered in the field of constitutional law.

That might be a Machiavellian view. But surely the PM is smart enough to realise that if the UK goes "naked into the debating chamber" without a coherent plan of what it wants, and with negotiating partners who are distracted by other issues, the outcome is likely to prove less than optimal from the UK's standpoint. Winding up other EU partners is not the way to get the deal which Davis, Fox et al think they can deliver. Postponing the Article 50 process might allow some of the heat which has built up in recent weeks to dissipate. Trade negotiations are best conducted in a cool and rational manner. Maybe we all need a little space to allow us to get to that point. 

* Update 13 November: Confusion exists as to the exact nationality of the hairdresser I identified as being Spanish. In many instances, they have been identified as Brazilian but other reputable sources have claimed they are Spanish, including the FT (here) and the  BBC (here).

Don't make it personal

Depending on your point of view, the decision by BoE Governor Carney to step down in June 2019 is either a one year extension of his term, having previously said he would leave in 2018, or he is leaving two years earlier than the mandated eight years. Either way, at least we have some clarity on where we stand ahead of the release of tomorrow's Inflation Report.

The whole affair does raise a number of issues regarding the role of central banks. For one thing, does it even matter whether Carney stays a year longer? His decision is based on the notion that the Brexit negotiations will be completed by that point and he will thus have steered the BoE through this critical period. That said, the hard work will only just be beginning. So whilst an extra year is welcome, in reality he probably only has a couple more years of any real authority. Once he enters the last year of his contract the markets will be less willing to hang onto his every word. Just ask Sir Alex Ferguson, who announced he would retire as Man United manager in 2002 but his team stopped listening to him and they underperformed as a result. And as we now know, Ferguson reversed his position and stayed for another 11 years.

Then there is the ongoing saga regarding the personification of central banking. Just over twenty years ago, central banks were secretive places where senior officials went out of their way to be anonymous. Alan Greenspan put a stop to that, of course. But the Fed has done just fine since he left. Indeed, Greenspan's reputation, which was such that Republican senator John McCain once remarked that he would like to  “prop him up and put a pair of dark glasses on him and keep him as long as we could," has since taken something of a beating.

Carney himself was hailed as the "rock star" central banker. But his decisions have been far from flawless and his forward guidance policy got off to a very shaky start, although he redeemed himself in many people's eyes with his conduct during the Brexit campaign. However, personification of policy issues is to miss the point. Central banks are not about one man (or woman). They are organisations with long institutional memories, staffed with competent people, and in theory it should be possible to find a few possible replacements from amongst the senior members of staff.

The media made a big thing of the extent to which Carney's reluctance to commit for the full eight years was the result of increasing conflict with the new administration. There may indeed be something to that. The Times reports today that he was "incensed by the criticism of the global elite ... because he saw it as an attack personally." There is no doubt that the government badly handled many economic issues at the Conservative Party conference last month. Thus Carney's extension, whilst not the full three years which the government undoubtedly wanted, represents a compromise which allows him to say he is not cutting and running during the worst of the Brexit negotiations. It also makes Carney look like a guy who hangs around when the going gets tough - no longer the unreliable boyfriend, as he was once memorably described - which is likely to serve him well in future.

Indeed, the small matter of his own personal ambitions may have played a role in all of this. A Canadian election is scheduled no later than October 2019 and Carney would then be well placed to return home to claim a senior political position, should he wish to pursue such a career as often claimed. He would also be well placed for a slot as head of the IMF once Christine Lagarde's term expires in 2021, with the horse trading likely to start well before that. These factors may have been the personal decisions which Carney was referring to when asked last week about his future as BoE Governor.

The big question is how crucial will Carney be to the UK's immediate economic future. There is no doubt that he is a big beast in the economic and political spheres in which he will have to operate. He is far from indispensable but for a government short of serious economic talent, he gives it some cover as it tries to figure out how to move forward on Brexit. Carney has demonstrated his willingness to stand up to preserve central bank independence. This may not be popular in certain sectors of government but it is what he is paid for. As it happens, I do believe that easy monetary policy is more of a hindrance than a help at this stage of the cycle. The difference between myself saying that, and Theresa May expressing the same sentiment, is that I am arguing for a change of the policy mix between fiscal and monetary. The PM made no such claims.

Whatever else Carney does over the next couple of years, the real fun will be watching him take on his Brexit critics. The likes of Jacob Rees-Mogg will undoubtedly be critical of Carney's decision to give the job another year but sniping is Rees-Mogg's default position. Ultimately Carney's position has become highly politicised thanks to the Brexit shenanigans and over the next couple of years that position is unlikely to change.

Good, better, best

Based on the evidence of the past week, the UK economy continues to defy any Brexit-induced economic gravity. The good news is that Q3 GDP increased by a respectable 0.5% q/q (an annualised rate of 2% for any US readers) which is normally the cue for pro-Brexit supporters to break out into a chorus of “we told you so.” Even better news is that the EU and Canada finally resolved their differences over the Ceta deal, which is a positive sign for the impending trade negotiations between the UK and EU. But perhaps the best news of all was that Nissan has agreed to shift production of two models to its Sunderland plant in 2019, despite having previously warned that it would it not invest unless it could be sure that it would be compensated for any rise in post-Brexit tariff barriers. The implication of this is that foreign investors may not be quite as deterred by the possibility of Brexit as much of the conventional wisdom might suppose.

Whilst all this is obviously good news, and confirms that the world continues to turn, we should not get allow ourselves to become complacent. With regard to the economic figures, data such as tax receipts suggest that there has been more of a slowdown than the GDP release suggested. Therefore it may or may not be an accurate barometer of what happened. We know from past experience that the things we thought were happening based on the initial GDP release turned out to be misleading. The recession of 2008-09 turned out to be worse than initially reported but the double dip recession of 2011-12 turned out not to be a recession at all. So we should reserve judgment. Anyway, once the negotiations get underway, we could yet be subject to the economic shock we were warned about. It is the UK’s long-term ability to deliver decent growth in living standards in the wake of Brexit which will be the ultimate test of the economy’s resilience. 

Whilst the Ceta issue turned all right in the end, it raises questions about whether the EU is capable of delivering a deal which its constituent governments are willing to accept, particularly at the regional level. After all, if any agreement cuts across areas where national governments have sovereignty, they will have to sign it off. This could, of course, cut two ways for the UK. If Brussels acts tough – in line with the message we have heard of late – but national governments are not prepared to sanction such a hard line, that could bode well for the UK. Or maybe national governments will want a tougher line than Brussels is prepared to tread. Either way it could be a recipe for things to get bogged down, as the Brexit negotiations become a protracted affair.

Then there is the issue of what the government promised Nissan in order to persuade it to commit it to expand its plant in northern England. Business Secretary Greg Clark said only that it has given ‘assurances’ to Nissan, including the commitment to try and achieve tariff-free trade for autos. Given that the EU currently levels a tariff of 10% on auto imports, and that the UK is a key export market for many other EU manufacturers, coming to some deal in this area makes sense for both parties. The UK government went to great lengths to deny that it has offered a ‘sweetheart’ deal to Nissan and that anything on the table will also be available to other industries, so it does not look as though it was bought with the chequebook. Of course, the UK cannot speak for other EU nations and there is no guarantee that tariff-free trade can be achieved.

Nonetheless, the noises out of the UK in recent weeks suggest a far more pragmatic approach than the rhetoric which accompanied the Conservative Party conference a month ago. We still hear nonsense from the Brexiteers suggesting that the Chancellor “will be making a ‘huge mistake’ if he endorses ‘nonsensical’ figures which suggest Britain's economicgrowth will collapse next year.” But on the whole, the adults in the room appear to be exerting a degree of control. I still find it difficult to avoid the conclusion that the UK will not suffer from the Brexit fallout, and as I have long suggested this does not have to mean recession but it could mean a period of materially slower growth. We will, however, only be able to judge that after a period of many years so let’s not get carried away now.

The FX markets continue to remain concerned, with the pound vulnerable to even the apparently most innocuous of news stories. As it happens, I do believe that the pound has fallen further than the evidence currently warrants, but the more pro-Brexiteers continue to give us the benefit of their economic wisdom, the more concerned the currency markets will be. A bit of silence from these folks would go a long way towards reassuring the market.

Reflections on Big Bang

Today was a momentous one in financial circles as it is the 30^th anniversary of Big Bang – the day which marked the deregulation of many of the restrictive practices which had previously characterised the City of London. It marked a turning point for many of the small firms which had formed the backbone of the City’s financial expertise, and which were soon to be swallowed up by the international giants with deep pockets. It also marked an end to the gentleman’s club atmosphere which had hitherto prevailed: Long boozy lunches were out and an era of sober hard work was ushered in. In his history of the City of London, the historian David Kynaston records that it was once previously impossible to take a train from the stockbroker belt in Surrey to arrive in London before 9 am. Pretty soon, people had to get used to the idea of early starts, and 7 am became the norm. After all, the markets never sleep so why should you?

For those committed to the cause, the monetary rewards were high. But whilst a City job may have initially served as a way for ‘barrowboys’, as young traders were once known, to advance their career it soon became evident that a sharp suit and quick tongue were not going to be enough to compete in an increasingly technical world. The concentration of PhD scientists and mathematicians employed in finance today would put many a university faculty to shame. But questions have been asked over the last three decades about whether much of what the City does is socially useful. It does keep many economists off the street, so that is probably a bonus. However, the criticism that too many of the smartest people are diverted towards finance and away from more socially productive roles is valid. Even more pernicious is that fact that the scrutiny to which companies are now subject means that many CEOs and finance directors look no further ahead than the next set of quarterly results. That is hardly a new criticism but it does seem to have gained momentum in recent years.

In the wake of the crash of 2008, the problems of footloose capital and lax regulatory oversight were laid bare. The industry created many products which those selling did not fully understand (anyone for a CDO, or even a CDO-squared?) let alone those buying. Caveat emptor is all very well but what about caveat venditor? Such products indeed yielded no social benefit, and adding poorly understood risks to an overly indebted financial system contributed to the severity of the crash. People sold such products because they were rewarded for doing so. And this highlights the fact that as the financial industry evolved, the compensation structures did not. Thirty years ago, partners were the rainmakers who brought in the money and were rewarded handsomely. But they also had a financial stake in the company and if it went south, so did their finances.

However, many people in the brave new world were paid as if they were partners when they were merely hired hands, playing with the company’s money and not their own. This created a series of false incentives which encouraged the monster to feed on itself. It also explained why many institutions were so keen to hide a lot of their debt off-balance sheet. Had it been discovered earlier, many practices would have been stopped earlier and a lot of people would have become less rich.

Remember the crash of 1987? Remember how we were all horrified in 1995 when Barings went bust, as a “common” trader laid waste to a blue-blooded institution? Or BCCI? Or Michael Milliken and a host of other unsavoury types? For all the fact that regulators are trying to clean up the banks, and indeed banks themselves are doing their best to snuff out many of the risks, we will never be able to make them 100% safe. The seeds of the 2008 crash were arguably sown by Big Bang and we are living with the consequences today. But for all the bad things which resulted from the great financial liberalisation, London did get something out of it as it helped to regenerate it as an international city. For anyone who doubts how far we have come, look at the photos of Docklands in 1986 which was emerging from a post-industrial wasteland. The shops and office blocks of today did not exist, and anyone who considered buying the newly built residential properties was considered slightly mad. But what an investment return it would have yielded!

The go-go days of 1986 will never return. Nor will the City which it usurped. One of my favourite stories of the pre-Big Bang days concerns two brothers who fought in World War I. Cyril Frisby won the Victoria Cross, the highest UK military award for valour. Lionel merely won the Military Cross and the DSO. Both subsequently worked on the floor of the London Stock Exchange and in order that people could distinguish which brother was being referred to in conversation, Lionel was universally and memorably referred to as ‘The Coward.’ Try that sort of behaviour on a trading floor today and see how far you get …

Exeunt the expert

The cult of the expert is very much under attack and nowhere, it seems, is this more evident than in the realms of central banking – and by extension, economics. This was eloquently expressed in a thought provoking article written by the journalist Sebastian Mallaby in The Guardian entitled “The cult of the expert – and how it collapsed”.  The thrust of the argument is that by depoliticising monetary policy and handing it over to technocrats, central bankers have been able to side step many of the checks and balances which exist in our democratic system. This in turn has allowed them to amass a very large degree of influence, enabling them to take decisions which may not necessarily be in the best interests of society as a whole.

Mallaby, who has recently published a highly acclaimed biography of Alan Greenspan, argues that the man formerly known as Maestro was “the ultimate embodiment of empowered gurudom.” Whilst Mallaby’s criticism is restrained, he offers a powerful indictment of Greenspan as one who combined “high-calibre expert analysis with raw political methods” with the former acting as cover for the latter. That is a pretty serious charge because in effect Mallaby accuses Greenspan of being an unelected official using his position to wield political influence – in other words subverting the democratic process. If, as Mallaby claims, “he embraced politics, and loved the game” that might explain why Greenspan hung around as Fed Chairman for so long (almost 19 years). One way to limit the degree of power which officials are able to accumulate is to set term limits for central bank governors – as indeed the Bank of England and ECB have done.

But this debate is about more than the way in which Greenspan went about his business. It is about whether decisions taken in the last eight years have been in the wider interests of society. Perhaps this has not always been the case, which explains why public discontent with technocratic policy making has risen so strongly. However, what is missing from Mallaby’s critique is that governments have failed to step up to the plate. As a consequence central banks have had to do all the policy heavy lifting because governments have refused to countenance fiscal easing. This is in part the result of political ideological conviction and partly due to the teachings of influential economists like Robert Lucas who argue that fiscal policy is ineffective. In a bid to bring together these disparate economic arguments, we have been subject to the ridiculous notion of expansionary fiscal contractions, used by some economists and politicians to justify why a tight fiscal stance can help boost the economy.

As a result economists are open to the charge that they do not know what they are talking about, and it is notable that a large proportion of the reader comments under the Guardian article ridiculed the economics profession. This is understandable for, as I have pointed out before, central banks have increasingly been portrayed as institutions designed to manage the economic cycle and in the wake of what happened in 2008 they have failed on that score. But this view is too simplistic. For one thing, it is generally the media which sets up economists as “experts.” We can provide some context and a little understanding of what is happening, and what is likely to happen if certain policy choices are followed. But we are not soothsayers.

It is not a “failure” if our predictions for GDP growth at the start of the year turn out to be half a percentage point too high or low, or if our monthly projections for the upcoming CPI inflation or unemployment rate turn out to be off by 0.1 percentage points. Getting the general direction of travel right will suffice. It is true that the profession failed to foresee the crash of 2008 but economists were not alone in that. The causes of the crash were far more complex than many politicians were prepared to admit in the immediate aftermath but suffice to say that blame can be shared across governments, financial regulators, central banks and households themselves. Indeed, the great lessons economics taught us in the wake of the 1929 crash were: (i) there is a role for government in helping to get the economy back on its feet; (ii) beggar-thy-neighbour tariff policies are self-defeating and (iii) fixed exchange rates can exacerbate the extent of shocks. Lesson (ii) has been taken on board across the globe but particularly in Europe, lessons (i) and (iii) have to a greater or lesser extent been ignored.

Policy prescriptions are like fashion – they change over the years. As Mallaby noted in his article, “the inflationary catastrophe sparked by 1970s populism has faded from the public memory, and no longer serves as a cautionary tale … [but] The saving grace of anti-expert populists is that they do discredit themselves, simply because policies originating from the gut tend to be lousy. If Donald Trump were to be elected, he would almost certainly cure voters of populism for decades.” So the economics profession is going to have to take all the abuse hurled in its direction on the chin. But whilst macroeconomics takes a lot of stick for its forecasting record, there have been lots of interesting real-world applications emanating from the field of microeconomics (auction theory and contract theory to name but two). As Noah Smith pointed out in an excellent blog post (here) “if you think that predicting recessions is economists’ only mission in life, think again.”

Is central bank independence all it is cracked up to be?

Regular readers will know that I am not a fan of combating the current economic ills purely via easier monetary policy and I do believe that both the Fed and BoE have been rather tardy in their monetary responses in recent years. Arguably, the Fed could have raised rates at a faster pace, and there was a window of opportunity for the BoE to have done so in 2014 as the unemployment rate breached the threshold levels which were seen as an obstacle to action. Indeed, a widespread belief is gaining ground that further monetary easing is likely to be counterproductive, given the distortionary effects this has on markets and the distributional impacts on savers. However, we have given central banks operational independence to focus on an inflation mandate and we have to leave them to get on with that job.

This makes the recent spat between UK politicians and the BoE Governor all the more remarkable. Prime Minister Theresa May noted a couple of weeks ago that, “there have been some bad side effects” from the current monetary policy “with super-low interest rates and quantitative easing” and that “a change has got to come.”  This prompted Governor Carney, who has already faced fierce criticism from pro-Brexit MPs regarding his impartiality during the referendum campaign, to respond that he would not “take instruction” from politicians about how to handle policy issues. Politicians have returned fire, and then some, with former Conservative leader William Hague writing yesterday that “eight years after the global financial crisis [central banks] are still pursuing emergency policies that are becoming steadily more unpopular and counterproductive. Unless they change course soon, they will find their independence increasingly under attack.” Whilst a good debate is healthy, that is tantamount to a threat. And one which most economists find unacceptable.

For one thing, central banks are not charged with distributional policy issues. That lies solely in the realm of government. If governments have not used the fiscal space created by the lowest interest rates in history, which after all were delivered by central banks, that is purely their own fault. Moreover, at a time when governments have been conducting an aggressively tight – and pretty regressive – fiscal stance it makes sense to keep monetary policy as lax as possible. It is called policy coordination and is what the Fed did during the first term of the Clinton Administration of 1992-96. We might not like the fact that interest rates remain at their emergency lows after eight years, but monetary policy prevented a much more dramatic collapse than might otherwise have occurred. With central banks having done the heavy lifting for all this time, what politicians should now be saying is, “thanks, we will take it from here."

Threats to central bank independence are not new, of course. The US Fed has been subject to Congressional badgering for years, as Alan Greenspan’s autobiography makes clear. The ECB’s unconventional policy measures have routinely been scrutinised by the German Constitutional Court, to ensure that they do not fall foul of the letter of the law. But is central bank independence all it is cracked up to be?

The independent central bank par excellence is the Bundesbank, which successfully delivered low inflation and stable growth for Germany for almost 50 years. Whilst the academic evidence suggests that they do deliver lower interest rates than non-independent central banks, this may be more to do with the trend towards more independence at a time of low inflation. Indeed, like many other aspects of monetary policy, they may simply be a fad which serves a purpose for a while but ultimately fall victim to a change in economic fashion, like monetary or exchange rate targeting. Indeed, there has been a tendency in the last 20 years to entrust the running of central banks to academic economists, not career bankers. Whilst they undoubtedly have a better understanding of monetary theory, which has allowed them to be more creative at finding solutions as interest rates hit the lower bound, I wonder whether the more restrained bankers of old would have been quite so tolerant of the liquidity build-up which contributed to the crash of 2008-09?

There is a school of thought which says that independent central banks were created to solve a problem which no longer exists – the reduction of inflation to tolerable levels – and that whilst they may be good at slowing the inflation process, they are not so good at reflating economies. There may be something in this, and we should not overlook the fact that the biggest financial crash in history took place on the watch of independent central banks. So there is nothing mystical or immutable about their independence. But the point of independence is to allow them to do things that politicians do not always like. Sometimes these things may be inconvenient, but if politicians want to change the landscape they need to have a grown-up discussion about the mandate, not issue threats.Political dialogue? There's a novelty!